99 F.

3d 1559
78 A.F.T.R.2d 96-7274, 65 USLW 2398,
97-1 USTC P 50,130,
Bankr. L. Rep. P 77,245,
10 Fla. L. Weekly Fed. C 553

UNITED STATES of America, Plaintiff-Appellee,

v.
Andrea A. RUFF, individually and as Trustee for the
bankruptcy estate of Central Micrographic
Corporation d/b/a Hospital Cooperative
Assn., Defendant-Appellant.
No. 95-2665.

United States Court of Appeals,

Eleventh Circuit.
Nov. 21, 1996.

Russell P. Hintze, Stephen G. Salley, Salley, Feinberg & Hames, P.A.,

Orlando, FL, for defendant-appellant.
Gary R. Allen, Laurie Snyder, Loretta C. Argrett, David I. Pincus, U.S.
Dept. of Justice, Tax Division, Washington, DC, for plaintiff-appellee.
Appeal from the United States District Court for the Middle District of
Florida.
Before HATCHETT, Chief Judge, ANDERSON, Circuit Judge, and
WOOD* , Senior Circuit Judge.
ANDERSON, Circuit Judge:

Defendant-appellant Andrea A. Ruff appeals the judgment of the district court,

on summary judgment, in favor of plaintiff-appellee the United States of
America in the amount of $20,000, arising from Ruff's failure to honor an
Internal Revenue Service ("IRS") levy on property or rights to property of a
delinquent taxpayer in her possession. United States v. Andrea A. Ruff, 179

B.R. 967 (M.D.Fla.1995). Because we find that judgment was properly

awarded to the government, we affirm.
I. STATEMENT OF THE CASE
A. Facts 1
2

The facts in this case are not in dispute. At all times relevant to this
controversy, Ruff served as the Chapter 7 Trustee in the bankruptcy case In re
Central Micrographic Corporation d/b/a Hospital Cooperative Association, case
no. 88-2577-BKC-6S7, filed in the United States Bankruptcy Court for the
Middle District of Florida. During the pendency of the bankruptcy case, Harold
Gene Artrip approached Ruff and informed her that he had a prospective buyer
for the debtor's assets. On February 24, 1989, Ruff filed an application with the
bankruptcy court to employ Artrip as a business broker for the bankruptcy
estate, under which he would receive a 10% commission to be shared by Artrip
and two other brokers previously employed by the estate. On March 2, 1989,
the bankruptcy court entered an order granting that application. The order
stated that the commission would be paid "only if his prospect is the successful
buyer of the debtor's business, in which case any awarded broker commission
would be shared equally" with the two other brokers. The order also stated that
payment of the commission was subject to final approval by the bankruptcy
court.

On April 17 and 18, 1989, Ruff, on behalf of the bankruptcy estate, entered into
an Agreement of Sale and Purchase of Real and Personal Property with the
prospective purchasers identified by Artrip. The agreement was signed by Ruff,
as trustee for the estate, by the purchasers, and by NCNB National Bank of
Florida, which held liens on the debtor's assets. The property thus sold was that
property for which Ruff had employed Artrip as a business broker. On April 26,
1989, Artrip filed an Application for Allowance of Broker's Fee for Broker for
the Trustee. The parties agree that at the time he filed this application, Artrip
had completed all of the services for which he was hired pursuant to the
bankruptcy court's March 2 order. Artrip sought $20,000, which represented
one-third of the broker's fee derived from the sale of the bankruptcy estate's
assets, consistent with the March 2 order. He noted in the application that if the
sale to his prospects was not consummated, he was not entitled to the
commission. On May 24, 1989, the bankruptcy court authorized the sale
contemplated by the April 17 and 18 agreement. The closing of that sale
occurred on June 16, 1989.

On July 13, 1989, the bankruptcy court entered a Notice of Hearing, setting

August 3, 1989, as the date for the hearing on Artrip's fee application. Ruff
received this notice before July 27, 1989. Prior to the events discussed above,
the IRS assessed a federal tax liability against Artrip, pursuant to 26 U.S.C.
6672. On July 27, 1989, the IRS served on Ruff a Notice of Levy for Artrip's
outstanding tax liabilities, which the Service indicated exceeded $230,000. The
levy sought,
5 property, rights to property, money, credits, and bank deposits now in your
[a]ll
possession and belonging to this taxpayer (or for which you are obligated), and all
money or obligations you owe this taxpayer....
6

Ruff indicated on the reverse of the Notice of Levy that she held no funds due
Artrip. In response to the question on that same form asking when Ruff would
next owe Artrip money, Ruff wrote "unknown." On the day that Ruff received
the Notice of Levy, she possessed, as Trustee in the Central Micrographics
case, funds sufficient to pay Artrip's commission.

On August 10, 1989, the bankruptcy court entered an order granting Artrip's
application for fees in the amount of $20,000, thus authorizing payment
thereof. On August 11, Ruff, acting as Trustee for the bankruptcy estate,
executed a check payable to Artrip in the amount of $20,000 for his share of the
commission derived from the sale of the assets of Central Micrographics.

B. Issue on appeal
8

26 U.S.C. 6332(a) requires that "any person in possession of (or obligated

with respect to) property or rights to property subject to levy upon which a levy
has been made shall, upon demand of the Secretary, surrender such property or
rights to property" to the Secretary. 26 U.S.C. 6332(d)(1) provides that any
person who fails to surrender property subject to levy shall be held personally
liable for the value of the property not surrendered. The sole issue in this case
is whether Ruff was "in possession of (or obligated with respect to) property or
rights to property subject to levy," meaning in this case any property or rights to
property belonging to Artrip, at the time she received the Notice of Levy from
the IRS on July 27, 1989.II. ANALYSIS

A. Standard of review
9

We review the district court's grant of summary judgment de novo, Hutton v.

Strickland, 919 F.2d 1531, 1536 (11th Cir.1990), viewing the facts in the light
most favorable to the non-movant. N.A.A.C.P. v. Hunt, 891 F.2d 1555, 1559-60
(11th Cir.1990).

B. Discussion
10

The IRS is empowered to levy on the property or rights to property of a

delinquent taxpayer in the hands of a third party pursuant to 26 U.S.C.
6331(a). The levy itself does not determine whether the government's claim is
superior to those of other claimants. Instead, the levy power is designed to
enable the government "promptly to secure its revenues" while competing
claims are resolved. United States v. National Bank of Commerce, 472 U.S.
713, 721, 728, 105 S.Ct. 2919, 2924, 2928, 86 L.Ed.2d 565 (1985). Upon
receipt of a notice of levy, such third parties are required to surrender that
property to the IRS. 26 U.S.C. 6332(a). The notice of levy "gives the IRS the
right to all property levied upon ... and creates a custodial relationship between
the person holding the property and the IRS so that the property comes into
constructive possession of the Government." National Bank of Commerce, 472
U.S. at 720, 105 S.Ct. at 2924. Those individuals who fail to honor the
Service's levy incur liability to the government equal to the full value of the
property not surrendered. 26 U.S.C. 6332(d)(1); United States v. Metropolitan
Life Ins., 874 F.2d 1497, 1499 (11th Cir.1989).

11

A third party may raise only two defenses to excuse its failure to surrender
levied property to the government. First, it can show that it was not, pursuant to
the language in 26 U.S.C. 6332(a), "in possession of" any of the delinquent
taxpayer's property or rights to property at the time that it received the notice of
levy. National Bank of Commerce, 472 U.S. at 722, 105 S.Ct. at 2925;
Metropolitan Life, 874 F.2d at 1499. Second, it can show that when it received
the notice of levy, the property in question was subject to attachment or
execution under judicial process. National Bank of Commerce, 472 U.S. at 722,
105 S.Ct. at 2925; Metropolitan Life, 874 F.2d at 1499. Ruff raises only the
first of these defenses.

12

Ruff argues that she was not "in possession of" any of Artrip's property or rights
to property on July 27, 1989, the day on which she received the Notice of Levy.
In order to determine if Ruff was in possession of Artrip's property, specifically
the $20,000 commission he eventually received as compensation for his
services as a business broker in the Central Micrographics sale, we employ a
two-step analysis.

13court assessing a levy on a taxpayer's intangible interest in property held by third

A
parties must determine first the nature of the taxpayer's interest in the property. This
is a question of state law.... Once the court has determined that a delinquent taxpayer
has rights to property, federal law determines whether the custodian of the property
is obligated to surrender the property to the IRS.

14

Metropolitan Life, 874 F.2d at 1500 (citing National Bank of Commerce, 472
U.S. at 724 n. 8, 105 S.Ct. at 2926 n. 8).

1. Artrip's right to property under Florida law

15
16

Under Florida law, a property has been sold, for the purpose of establishing
entitlement to a commission, once the purchaser executes a binding contract to
purchase the property at issue. Hagans Co. v. Manla, 534 So.2d 750, 751 (Fla.
3d DCA 1988). However, the broker and the party responsible for payment of
the commission may record in the broker's commission agreement express
conditions precedent to the broker's entitlement to that commission, and these
conditions must be met before the broker is legally entitled to payment. Id. at
751-52; Harding Realty, Inc. v. Turnberry Towers Corp., 436 So.2d 983, 984
(Fla. 3d DCA 1983). Significantly, there is a distinction under Florida law
between a condition precedent to the entitlement to a commission and a
condition precedent to the payment of a commission. See Harding Realty, 436
So.2d at 984 (broker was not entitled to commission because commission
agreement "expresse[d] that entitlement to the commission, as opposed to just
payment of the commission, [was] to occur at closing," and closing never
occurred).

17

On April 17 and 18, 1989, Ruff, on behalf of the bankruptcy estate, entered into
a binding contract of sale for the assets of the estate to the prospect identified
by Artrip. The sale was approved by the bankruptcy court, and was
consummated. However, Ruff argues that Artrip's appointment by the
bankruptcy court as a business broker and the commission agreement were
subject to an express condition precedent to his entitlement to the commission.
That order states:

18 fee will only be paid upon application, general notice and approval of the
[A]
Bankruptcy Court.
19

In re Central Micrographic Corp., No. 88-2577-BKC-6S7 (Bankr.M.D.Fla.

March 2, 1989) (Order appointing Artrip business broker). Ruff argues that
Artrip was not entitled to those fees until the bankruptcy court gave its final
approval, which occurred on August 10, 1989.

20

As noted above, there is a difference under Florida law between entitlement to a

commission and payment of a commission. The broker in Harding Realty was
denied his commission because the commission agreement specifically stated
that entitlement to the commission would occur at closing, and the buyers
never closed on the properties. Harding Realty, 436 So.2d at 984. In this case,

Artrip's commission was agreed upon and approved on March 2, 1989, by the
bankruptcy court. Under that order, Artrip was entitled to the commission if his
prospect was the successful buyer of the property, which was in fact the case. It
is true that the order also stated that Artrip's commission would be "paid" only
upon subsequent application to and approval by the bankruptcy court. The
court's order conditioned payment, not entitlement, upon further approval.
Under Florida law, the condition as to payment did not undermine Artrip's
entitlement. Thus, Artrip was entitled to payment, at the latest, when the sale of
the property was consummated pursuant to the April 17 and 18, 1989 contract
for sale. Hagans Co., 534 So.2d at 751. The district court properly concluded
that, under Florida law, Artrip had an entitlement, and thus had a property
interest in the commission.
2. Ruff's obligation to surrender Artrip's commission to the IRS
21
22

Once it is determined that a state law property interest exists, federal law
determines the tax consequences of that interest. National Bank of Commerce,
472 U.S. at 722, 105 S.Ct. at 2925. State law is not relevant to this inquiry. Id.
Federal law, specifically the Treasury regulations governing the levy power,
establishes the nature of this determination.

23 levy extends only to property possessed and obligations which exist at the time
[A]
of the levy. Obligations exist when the liability of the obligor is fixed and
determinable although the right to receive payment thereof may be deferred until a
later date.
24

26 C.F.R. 301.6331-1(a)(1). The issue of whether Ruff was obligated to

surrender Artrip's commission to the IRS is really a question of whether the
liability of the bankruptcy estate to Artrip was "fixed and determinable" at the
time that the Notice of Levy was served on Ruff. United States v. Hemmen, 51
F.3d 883, 888 (9th Cir.1995).

25

At the outset, it is important to note that the quoted regulations include among
obligations which are "fixed and determinable" those obligations for which the
right to receive payment has been deferred. Thus, an obligation can be fixed and
determinable even if the right to receive payment does not arise until a later
time. The court in Hemmen analogized a fixed and determinable obligation of
this type to "an ordinary contract with an executory duty to pay for a completed
performance by the obligee." Id. at 890.

26

The situation confronted by the court in Hemmen is very similar to that in the
case at bar. In Hemmen, the president of a Chapter 11 debtor, Al-Hadid

(hereinafter referred to as "taxpayer") performed certain services for the estate

by working to preserve the assets of the estate. He filed a claim with the
bankruptcy court for administrative expenses. The case was converted into a
Chapter 7 liquidation, and Hemmen was appointed trustee. Id. at 886. The
district court entered two separate orders allowing the taxpayer's claim for
administrative expenses. The second of these orders, dated October 16, 1984,
indicated that payment would not be made "except upon further order of the
court." Id. The underlying performance by the taxpayer was complete at all
relevant times. Approximately one year before the issuance of these orders, the
IRS assessed a civil tax penalty against the taxpayer. Pursuant to that
assessment, on December 17, 1985, after allowance of the claim for
administrative expenses but before the bankruptcy court had finally approved
payment thereof, IRS agents served a notice of levy on Hemmen demanding
the surrender of any of the taxpayer's property or rights to property in
Hemmen's possession as a result of his status as trustee. Id. However, instead of
surrendering the money owed by the estate to the taxpayer, Hemmen paid those
funds to the taxpayer. The IRS sued Hemmen, arguing that he was personally
liable for the funds paid to the taxpayer.
27

The court in Hemmen held that the allowed administrative expenses were fixed
and determinable as of the date on which the Secretary's notice of levy was
served. It reached this conclusion despite the fact that actual payment of those
expenses by the trustee had to await authorization from the bankruptcy court,
and the fact that the claims for expenses could be reduced to money only if
there were sufficient assets left in the estate to satisfy them. Id. at 890.
Additionally, the court noted that the trustee retained the power to move the
bankruptcy court to disallow the claims. Id. These factors failed to sway the
court.

28 of these conditions to payment, however, undermines the proposition that the

None
obligation of the estate to [the taxpayer] was "fixed" within the meaning of
301.6331-1(a)(1) after the underlying performance was completed and the claim
was allowed by the court.... At best, the factors Hemmen cites establish only that the
estate's liability was fixed but that [the taxpayer's] interest was still subject to
possible defeasance due to factors having no bearing on the underlying performance.
29

Id. Further, the court held that the sum due the taxpayer was determinable
because, although there was some uncertainty as to whether there would be
sufficient funds remaining in the estate to pay the taxpayer's claims, the sums
were still capable of precise measurement in the future. Id. (citing Reiling v.
United States, 77-1 U.S. Tax Cas. (CCH) P9269, 1977 WL 1094
(N.D.Ind.1977)). Thus, according to the Hemmen court, the administrative

expenses due the taxpayer were fixed and determinable because they had been
allowed by the bankruptcy court and the underlying performance had been
completed. The fact that payment might not be made due to a shortfall in the
estate or subsequent disallowance by the bankruptcy court had no impact on the
Hemmen court's determination that they were fixed and determinable as of the
date of the levy.
30

Similarly, Artrip's commission was fixed and determinable on July 27, 1989,
the date that Ruff received the Secretary's Notice of Levy.2 It was fixed
because the bankruptcy court in its March 2, 1989, order approved Artrip's
appointment as broker for the estate with a 10% commission (to be shared
equally with two other brokers), and because the underlying performance
required of Artrip was complete. The buyer identified by Artrip entered into an
agreement with Ruff to purchase those assets in April of 1989, and the sale was
authorized by the bankruptcy court on May 24, 1989. The closing occurred on
June 16, 1989. The commission was determinable because it was capable of
precise measurement, having been established by previous court order. See In
re Central Micrographics Corp., No. 88-BKC-6S7 (Bankr.M.D.Fla. March 2,
1989) (Order appointing Artrip business broker). The bankruptcy court set a
date for Artrip's fee hearing by notice to the parties almost two weeks before
Ruff received the Notice of Levy. The fact that Artrip was entitled to a
commission of $20,000 was never in dispute, and this is unaffected by the
potential unavailability within the bankruptcy estate of the resources needed to
pay that amount. Common sense dictates that the Treasury regulations at issue
here be read this way.3 If the regulations were meant to require, as Ruff argues,
that the commission must be paid to the broker before it can be fixed and
determinable, then they would have been written to so require.

31

Our holding is consistent with the purpose of the levy. The levy is not
designed, as noted above, to give the government's claims superiority over the
claims of others. Instead, the levy is intended only to protect the government's
statutory interest in "property or rights to property," see 26 U.S.C. 6332(a),
and to assure the availability of the assets at issue once a final ordering of
claims is made. National Bank of Commerce, 472 U.S. at 721, 728, 105 S.Ct. at
2924-25, 2928. The resolutions reached in Hemmen and in the case at bar
merely insure that this interest is protected by putting the burden of monitoring
the progress of the bankruptcy estate on the party who can most easily and
efficiently carry it, the trustee.

32

The interpretation of the statute urged upon us by Ruff would read out of the
statute the phrase "rights to property," and thus would strictly limit an IRS levy
to "property" actually in the possession of the party upon whom the levy is

served. Ruff's interpretation is also inconsistent with the regulations, and would
eliminate from the property subject to levy "obligations which exist at the time
of the levy." 26 C.F.R. 301.6331-1(a)(1). It would render superfluous the
regulation's elaboration to the effect that those obligations upon which levy
may be made are those which are "fixed and determinable" although the right
to receive payment thereof may be deferred. Ruff's interpretation would
seriously undermine the Service's ability to protect the government's statutory
interest.
33

Analysis of the relevant bankruptcy provisions governing the payment of

professionals from the assets of the estate reinforces our conclusion that Artrip's
commission was fixed and determinable as of the date of the levy. Section 328
of the Bankruptcy Code states:

34 The trustee ..., with the court's approval, may employ ... a professional person ...
(a)
on any reasonable terms and conditions of employment, including on a retainer, on
an hourly basis, or on a contingent fee basis. Notwithstanding such terms and
conditions, the court may allow compensation different from the compensation
provided under such terms and conditions after the conclusion of such employment,
if such terms and conditions prove to have been improvident in light of
developments not capable of being anticipated at the time of the fixing of such terms
and conditions.
******
35
36 [Subject to exceptions not relevant here], the court may deny allowance of
(c)
compensation for services and reimbursement of expenses of a professional person
employed under section 327 ... if at any time during such professional person's
employment ... such professional person is not a disinterested person, or represents
or holds an interest adverse to the interest of the estate with respect to the matter on
which such professional person is employed.
37

11 U.S.C. 328 (emphasis added).

38

The bankruptcy court in this case approved Artrip's fee arrangement, including
the provision setting his commission percentage, on March 2, 1989, well before
the Secretary served the Notice of Levy on Ruff. Because Artrip's prospect was
the ultimate purchaser of the Central Micrographics property, and because the
sale had been consummated, he had completed the tasks required of him to
establish his entitlement to that commission as of the date of the levy. Section
328 significantly curtails the bankruptcy court's discretion with respect to the
final payment of previously approved fees to professionals.

39

The bankruptcy court's power to alter the fee arrangement in no way diminishes
the fixed and determinable nature of Artrip's commission arrangement, which
was approved by the bankruptcy court on March 2, 1989. The district court
noted that there were no facts upon which the bankruptcy court could have
based a decision to reduce or eliminate Artrip's commission. Ruff, 179 B.R. at
972. There was no evidence that Artrip was no longer a disinterested person,
nor that the bankruptcy court felt that the fee arrangement was improvident.
The fact that the court scheduled a hearing on the fee indicates that there was
money left in the estate with which to pay it. Thus, the district court concluded
that Ruff could not have seriously questioned whether Artrip would receive his
fee at the time that she received the Notice of Levy. Id.

III. CONCLUSION
40

We conclude that Ruff was, within the meaning of 26 U.S.C. 6332(a), "in
possession of ... property or rights to property subject to levy" on July 27, 1989,
the date on which she received the Secretary's notice of levy for Artrip's
outstanding tax liabilities. She was therefore required to surrender that property
or the rights thereto to the Secretary. She did not do so, and, pursuant to 26
U.S.C. 6332(d)(1), is therefore personally liable to the Secretary for the value
of the property not surrendered, in this case $20,000. We affirm the ruling of
the district court.
AFFIRMED.4

Honorable Harlington Wood, Senior U.S. Circuit Judge, Seventh Circuit, sitting
by designation

Our statement of the facts is taken in large measure (verbatim in considerable

part) from the district court's excellent opinion

Ruff argues that the facts of this case are more similar to those found in Tull v.
United States, 69 F.3d 394 (9th Cir.1995), and that therefore we should adopt
the logic of that case. However, Tull is entirely consistent with the reasoning of
Hemmen, and is distinguishable on its facts from both Hemmen and the case at
bar. In Tull, the IRS served a notice of levy on the Secretary/Treasurer of a
corporation with significant outstanding tax liabilities, including both payroll
withholding and trust fund liabilities. At the time, the corporation was
experiencing financial difficulties, and sought to auction off some of its
equipment. The IRS served the notice prior to the auction, but after a contract to
auction the property had been made between the corporation and an auction

house. Id. at 395. The court held that the property of the corporation, in this
case the right to the proceeds of the auction, was not fixed and determinable on
the date of the levy. Id. at 397. It noted that the actual property to be sold had
not been finally set as of the date of the levy, nor had a buyer come forward to
purchase that property. Thus, the auction house "had an obligation to attempt to
sell some as yet undetermined amount of property for an as yet undetermined
price to as yet undetermined buyers." Id. The court reasoned, however, that "
[a]n actual sale of property would establish both the price of that property and
the duty of the buyer to pay the price, even if the date of payment were
deferred." Id. at 398
The court in Tull noted that the situation in Hemmen was quite different. In
Hemmen, "the performance of the taxpayer had been completed and the
amount he was owed for that performance had been determined, subject to a
possible later defeasance in whole or part if funds were not available." Tull, 69
F.3d at 398. The situation in the instant case and in Hemmen are quite different
from that in Tull. Here, as of the date of the levy, the sale was complete, and
thus the underlying performance required of Artrip was complete. The amount
of the commission due was firmly established, having been set by previous
court order. The possibility of "later defeasance," as in Hemmen, has no impact
on the fixed and determinable nature of the commission due Artrip.
3

This common sense reading of 26 C.F.R. 301.6331-1(a)(1) is consistent with

that found in cases interpreting other parts of the Treasury regulations
governing the Service's levy power. In In re Quakertown Shopping Center, Inc.,
366 F.2d 95 (3rd Cir.1966), the court, interpreting section 301.6331-1(a)(3),
held valid and enforceable a levy served on a receiver in bankruptcy against
any property or rights to property due a creditor of the estate. The levy sought
to secure assessed tax liabilities of the creditor. As of the date of the levy,
however, the creditor had only filed a claim against the bankruptcy estate, but
the bankruptcy court had not yet allowed the claim. The court reasoned that the
levy in this instance operated like an involuntary assignment of the creditor's
claim against the estate to the United States. Id. at 98. Because the creditor was
free to make a voluntary assignment of his claim without the permission of the
bankruptcy court, the court found that it was similarly free to transfer its claim
in this instance, albeit involuntarily. Thus, the receiver did have in his
possession property of the taxpayer, namely the claim against the estate, and
the levy validly functioned to transfer that property to the United States. Id

We agree with the district court that the bankruptcy court case of In re Ceafco,
No. 28,700, 1977 WL 1273 (S.D.Ala.Dist.Tax Sept. 21, 1977), was wrongly
decided. Ceafco involved facts almost identical to Hemmen, in that the IRS
served a levy upon the trustee in bankruptcy seeking property of a taxpayer

whose claims for administrative expenses had been allowed. The bankruptcy
court judge reasoned that only the bankruptcy court had the authority to
determine how the assets of the bankruptcy estate were to be distributed, and
because that determination had not yet been made, the trustee held no right to
property belonging to the taxpayer, and therefore the levy was premature. The
Ceafco court overlooked the fact that an IRS levy does not determine that the
government's claim is superior to that of other claimants. National Bank of
Commerce, 472 U.S. at 721, 728, 105 S.Ct. at 2924-25, 2928. Thus, the levy
does not interfere with a bankruptcy court's determination of how the assets of
the estate are to be distributed